A revised comparison between FF five-factor model and three-factor model,based on China's A-share market

Zhijing Zhang, Yue Yu, Qinghua Ma and Haixiang Yao

Papers from arXiv.org

Abstract: In allusion to some contradicting results in existing research, this paper selects China's latest stock data from 2005 to 2020 for empirical analysis. By choosing this periods' data, we avoid the periods of China's significant stock market reforms to reduce the impact of the government's policy on the factor effect. In this paper, the redundant factors (HML, CMA) are orthogonalized, and the regression analysis of 5*5 portfolio of Size-B/M and Size-Inv is carried out with these two orthogonalized factors. It found that the HML and the CMA are still significant in many portfolios, indicating that they have a strong explanatory ability, which is also consistent with the results of GRS test. All these show that the five-factor model has a better ability to explain the excess return rate. In the concrete analysis, this paper uses the methods of the five-factor 25-group portfolio returns calculation, the five-factor regression analysis, the orthogonal treatment, the five-factor 25-group regression and the GRS test to more comprehensively explain the excellent explanatory ability of the five-factor model to the excess return. Then, we analyze the possible reasons for the strong explanatory ability of the HML, CMA and RMW from the aspects of price to book ratio, turnover rate and correlation coefficient. We also give a detailed explanation of the results, and analyze the changes of China's stock market policy and investors' investment style recent years. Finally, this paper attempts to put forward some useful suggestions on the development of asset pricing model and China's stock market.

Date: 2021-10
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/2112.03170 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2112.03170

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().